Graph of the week: Worried about the US economy

The manufacturing sector in the US has been under serious pressure for several months. Worryingly, this weakness now seems to be spreading outside of manufacturing. The probability of the US economy slipping back into recession in the near future has significantly increased in the past two months.

US manufacturing has been under serious pressure for several months, which is already being reflected in cutbacks in investment spending. Other key parts of the economy like the labour market and the housing market have been holding up rather well. Worryingly, in the past developments in manufacturing were usually leading indications for the rest of the economy.

In recent months business confidence in the services sector has also turned down sharply, which is obviously an important source of concern. For now, these indicators remain above recession-like levels. As such, the most likely scenario is still for the US economy to avoid recession. That said, the probability of the US slipping back into recession in the near future has significantly increased in the past few months.

In any case, the weaker economic data will force the Fed to scale back its rate hiking plans. Until quite recently, the Fed was planning to raise its policy rate by 1% over the course of the year. Markets have already abandoned any expectation of further rate hikes this year.

This article was written by Bart Van Craeynest

on 5 February, 2016

On completion of his studies in economics at UFSIA, Bart Van Craeynest started work as an economist in the financial sector. In this capacity he has been following economic developments in Belgium and internationally and the impact of the latter on the financial markets for over 15 years. Following a long period at a large bank, he became chief economist at a Belgian financial institution in 2010. Bart Van Craeynest has held the position of chief economist at Econopolis since 2015. He is co-responsible for the economic line of the house and hence closely involved in developing the investment strategy.